M&T Bank joined the nation's largest banks in significantly boosting its first-quarter allowance for losses in the value of its loans on commercial real estate, particularly office buildings.
At the same time, the holding company for Manufacturers and Traders Trust Co.'s commercial real estate loans decreased slightly as new construction starts in its markets slowed in a trend that M&T said Monday could hold through the year.
M&T held the seventh-largest commercial real estate loan portfolio among U.S. banks at year-end 2022, according to Federal Deposit Insurance Corp. data. Bigger property lenders Wells Fargo, JPMorgan Chase and PNC Financial Services Group said last week they are still making loans on commercial properties, showing that recent failures of Silicon Valley Bank and Signature Bank may have rattled some investors, but lending hasn’t stopped.
Based in Buffalo, New York, M&T is one of the first regional banks, like Silicon Valley and Signature, to report results on the turbulent first quarter, and its results could provide some assurance to the commercial real estate industry.
The bank allowed $120 million for loan losses of all types in the quarter, up from $10 million a year earlier and $90 million in the fourth quarter. About $25 million to $33 million of the latest allowance was for commercial real estate, noted Darren King, chief financial officer for M&T, during a Monday earnings conference call.
More of the bank’s commercial real estate loans flagged as having an elevated risk of default are tied to office properties, King said. Office properties make up about 20% of those loans, which is up slightly but not dramatically.
Hotel, Retail Improvement
The growth is a concern that M&T is keeping an eye on, but it has been offset by decreases in the amount of hospitality and retail loans having elevated risks because consumers and travelers have reemerged following the height of pandemic concerns, King said.
“We have about $200 million of office [loans] maturing each quarter for the next two [quarters], then it actually drops down in the fourth quarter,” King said. “When we look at the [loan-to-value ratios] of what’s maturing, we’re in the neighborhood of 80% of those maturing loans have an LTV of 60% or less.”
The lower loan-to-value ratios give M&T some protection against losses, King said.
“That’s not to suggest that there will be no losses,” he said. “We did take some partial charge-offs on a couple of office properties as we did get new appraisals on things that were troubled. But there is still room there” against potential further losses.
M&T’s boost to loss allowances comes as the bank digests its $8.3 billion acquisition of People’s United Financial a year ago this month.
That acquisition helped raise M&T’s net interest income to $1.8 billion in the first quarter, up 102% from before it acquired People’s United.
Nonaccrual loans, where the lender does not expect to fully recover outstanding principal and interest, were $2.56 billion, or 1.92% of loans outstanding, on March 31, compared with $2.13 billion, or 2.32%, a year ago. Nonaccrual loans that came from People’s United made up $605 million of the first-quarter total, M&T said.
As of year-end 2022, commercial real estate loans made up more than half of the loans in nonaccrual status, according to data from the FDIC. M&T did not break out first-quarter commercial real estate delinquent and nonaccrual loan numbers.
Going forward, King said commercial real estate loan growth would be muted to some extent by the lack of sales transactions and new construction starts.